After slim profits, or losses, in many quarters, Amazon is the single-biggest driving force behind the S&P 500’s more than 6% gain in 2018.

Amazon, Microsoft, Apple, Netflix, and Alphabet (formerly Google) account for nearly half of the gains of a group of 500.

Amazon is no bargain, but Investors Keep Buying.

>Shares of companies like Inc., Netflix Inc. and Inc. - have surged this year, driving the stock market higher but also pushing valuations to what some investors consider worrisome levels.

>The valuation of the average stock in the S&P 500 is now in the 97th percentile of historical levels, according to Goldman Sachs Group Inc., which analyzed 40 years of market pricing and valuation data. The valuation level is thanks in large part to the rise of high-flying tech stocks.

Crowded Trades

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Purported Forward P/E Ratio

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That chart from the article is a joke.

Not only does it presume earnings estimates will continue rising indefinitely, it is also pro-forma nonsense that ignores alleged "one time" costs that seen to occur with regularity.


Shiller Smoothed P/E Chart

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This is the second most overvalued market in history according to the Shiller P/E Ratio.

Obviously this is not a timing mechanism but it is a monster big warning symbol.

New Ways of Thinking

To believe in this market requires new ways of thinking.

>“I don’t talk about multiples. That’s where the conversation stops,” Jonathan Curtis, a portfolio manager at Franklin Templeton’s Franklin Equity Group, says of discussions with others about tech companies. “I tell them, ‘Help me understand what this business looks like at maturity.’”

>He and others argue that investors have to take a longer-term view of high spending that depresses short-term profits, and so leads to elevated price/earnings multiples.

In other words, it's different this time (until it isn't). The reasons change, the end result won't.

Mike "Mish" Shedlock

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